Greeks: Delta Question Pristine Options Quiz 1 Q.18 PRM pape

ameyakukde
Good Student
Posts: 29
Joined: Thu Aug 02, 2012 11:55 am

Greeks: Delta Question Pristine Options Quiz 1 Q.18 PRM pape

Postby ameyakukde » Sat Mar 16, 2013 2:29 am

A bank has sold $300,000 USD of call options on 100,000 equities. The equities trade at 50, the option strike price is 49, the maturity is in 3 months, volatility is 20%, and the interest rate is 5%. How does it the bank delta hedge? Round to the nearest thousand share.

I have used d1= (ln(S0/k)+(r+(sigma^2)/2))/(sigma*sqrt(T))

I get d1= 0.902 and N(d1) is N(0.90)+0.2(N(0.91-0.90)

which is 0.815954. How is delta=0.65 then?

I have used T=0.25; sigma=0.2; r=0.05. Where am I wrong? Please help.

ameyakukde
Good Student
Posts: 29
Joined: Thu Aug 02, 2012 11:55 am

Greeks: Delta Question Pristine Options Quiz 1 Q.18 PRM pape

Postby ameyakukde » Sat Mar 16, 2013 2:44 am

Sorry, i missed out on the formula. Got the correct answer. Thanks, ignore this question. Is there no option to delete a thread?

Also, if the no.of days to maturity in a Black Scholes Model question are given as, say, 41. Then what should be the denominator? 365 or 250 i.e. calender days or trading days to calculate the price of the option?


Return to “FRM Part II”



Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.